Navigating Credit Committees: A term sheet isn’t a loan, yet

Tim Milazzo
Navigating Credit Committees: A term sheet isn’t a loan, yet
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Ah, the credit committee. This is a regular step for many lenders, particularly banks lending on balance sheet. The hard truth here is that the process varies by every lender. It really depends on the lender, and even on the individual loan officer, to know how often a deal they’ve quoted to a borrower will be killed in committee. If you’re on your own as a borrower (without a loan broker or capital advisor) and managing your first deal with the particular bank (especially on your first commercial mortgage), then you are at your highest risk.

A few mitigating factors to reduce the risk of the loan dying in committee:

Start the process early

If you’re counting on the loan coming through so you don’t miss your closing date (for an acquisition deal) or loan maturity date (for refinancing), that can cause a lot of stress. Until you have a commitment letter, you don’t have a loan. Period. Keep this in mind especially if you’re undertaking a 1031 exchange, where your tax benefits are on the line.

Disclose everything relevant up front

Anything that comes as a “surprise” on the deal later on with the lender is bad news. Lenders hate surprises.

Collect multiple competing term sheets

Relying on a single point of contact with one bank is great… if that always worked out. The truth is, a loan can be killed before, or after, you’ve paid an application fee. That’s why it’s prudent to gather a few competitive term sheets, and also gather more information about the bank’s track record closing commercial loans. If you aren’t able to accomplish this on your own and would prefer a single point of contact, that’s where a capital advisor comes in.

How we manage originations

When we arrange commercial loans for our clients, we don’t tell them they “have” the loan until the commitment letter is issued, and we set expectations and have contingency plans in the case where a loan falls through. We also advise selecting an institution not just for the terms they lay out on paper, but for the track record we’ve seen from them in the past. The prospect of saving twenty-five basis points is not worth trading for less certainty of closing. We’re also your advocate in addition to your advisor.

Have any good or bad stories about your experience with a loan committee? Chime in below!



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